* FTSEurofirst 300 index rises 0.7 percent
* RBS jumps after announces job cuts
* Tesco falls after profit warning
By Joanne Frearson
LONDON, Jan 12 European shares rose on Thursday after a Spanish government bond auction showed healthy demand for peripheral euro zone debt.
Banks, which have been at the forefront of the region's debt crisis due to their exposure to sovereign debts, were standout gainers after the auction, with the STOXX Europe 600 Banks index rising 2 percent.
Royal Bank of Scotland a top mover, up 7.1 percent, was also buoyed by its announcement of 3,500 investment bank job cuts and an exit from cash equities, corporate broking, equity capital markets and mergers and acquisitions businesses.
Company earnings were more mixed, however, with retailer Tesco the worst performer, down 14.6 percent, painting a bleak picture about the economy and warning on profits.
Although the Spanish auction saw solid demand and borrowing costs fell, traders said it was only the first of many auction's, with Italy the next test of investors appetite for debt on Friday.
"Spanish bond auction is important for market confidence as it is the first test of investor risk appetite for debt, which is needed to push the market higher," said Joshua Raymond, Chief Market Strategist at City Index.
"But, Italy will be another main event."
Colin McLean, managing director of SVM Asset Management said he was starting to become more positive on the banking sector due to the ECB offering them cheap money.
"Things seem to be improving for the banks and the ECB seems to be doing enough to keep the pressure off the sector's funding concerns. There is a case now for investing in banks that do not need further funding," McLean said.
Traders were also hoping the European Central Bank news conference on Thursday with President Mario Draghi could give some signs of how the bank might use its balance sheet to prop up growth in the region.
"Investors will be looking for more words from Draghi of the tone of the ECB, market still wants more rate cuts and a more aggressive stance towards sovereign debt and buying bonds," said Raymond.
Long-term investors are still wary about fallout from the euro zone debt crisis as senior European bankers have said talks with private sector creditors over contributions to a second Greek bailout are going badly. This raises prospects that governments will have to increase their contribution to the aid package.
At 1012 GMT, the FTSEurofirst 300 index of top European shares was up 0.7 percent at 1,029.02 points after falling 0.5 percent in the previous session.